End of 'reset' nears as Fonterra sets a wide milk price range for 2020/21

Fonterra has set a wide milk price range for 2020/21. Photo / File

Its milk price range for 2020/21 is big enough to drive a milk tanker through, but the once-troubled Fonterra has nevertheless gained credit for its financial performance for the year to date.

The co-op, which last year turned in a record $605 million loss, said the group's normalised earnings before interest and tax (Ebit) for the nine months to April 30 came to $815m, an increase of $301m on this time last year.

Fonterra's earnings forecast for the current year to July has remained at 15-25 cents a share, but chief executive Miles Hurrell said he was confident the result would be at the upper end of that range.

The co-op's net debt fell sharply to $5.7 billion from $7.4b a year earlier.

Fonterra has forecast a milk price for the coming year of $5.40-$6.90 per kg of milksolids, with a $6.15 mid-point.

The forecast for the current season, which ends on May 31, was at the lower end of a previously advised range, at $7.10-$7.30/kg.

Hurrell said the impacts of the Covid-19 pandemic would be keenly felt over the fourth quarter.

Fonterra has been reorganising its operations since reporting last year's big loss.

Hurrell acknowledged that it was a wide milk price range for the year ahead, but the co-op was near the end of its reorganisation, or "reset".

"We have made very good progress and you have seen that play out in the third quarter," he told a conference call.

"I would like to think that we are on the home straight for that significant reset but that should not be seen as the end of it," he said.

"Our job is to continue to evolve the co-op."

Hurrell acknowledged the milk price range was big, but said it reflected the uncertain environment the co-op faces, particularly since some of its key market markets look likely to go into recession.

Unlike many New Zealand businesses right now, there will be no job losses

Chris Lewis, Federated Farmers dairy chair, said the milk price range was a "massive" .

Break even for farmers is around 6.00/kg, so a milk price even at the mid-point would make life tough for farmers and their spending.

"It needs to be at $7.00 to make farms a viable long term business, not $6.15."

But Lewis, an occasional critic of Fonterra, said it was a strong financial result.

"These are credible numbers and not numbers that have been put through a PR machine.

"I think it should be celebrated that there are not many companies out there that have $800 million profits," he said.

"That's positive for the economy - by a country mile."

Fonterra's NZX-traded units closed 6c higher at $3.65 while the sharemarket overall was weaker.